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This paper analyzes the impact of heterogeneous (social) preferences on the weighting and combination of incentive performance measures as well as on a firm’s profitability within a principal-agent framework. Previous literature had failed to recognize heterogeneity effects. We consider rivalry, pure self-interest and altruism as extreme forms o...

This paper analyzes the impact of heterogeneous (social) preferences on the weighting and combination of incentive performance measures as well as on a firm’s profitability within a principal-agent framework. Previous literature had failed to recognize heterogeneity effects. We consider rivalry, pure self-interest and altruism as extreme forms of such preferences within the spectrum of possible alternatives, and show that firm profits are maximized when differentiation among agents is maximized with respect to individual (social) preferences. In order to realize these gains in profitability, it is necessary that a firm directs principals to reallocate participation in performance measures so that competitive agents are privileged over altruistic agents. By modeling the need to incorporate heterogeneity of agents we provide insights that differences in social preferences can be managed to improve wage compensation and other business administration deliberations within a decentralized firm.- 1-1. Minimize

This paper analyzes the impact of heterogeneous (social) preferences on the weighting and combination of performance measures as well as on a firm’s profitability. We consider rivalry, egoism and altruism as extreme forms within the continuum of possible preferences and show that the principal can typically exploit both the altruistic and rivali...

This paper analyzes the impact of heterogeneous (social) preferences on the weighting and combination of performance measures as well as on a firm’s profitability. We consider rivalry, egoism and altruism as extreme forms within the continuum of possible preferences and show that the principal can typically exploit both the altruistic and rivalistic behavior of his agents. Firm profits reach their maximum value if the agents are differentiated as much as possible in their individual characteristics. We provide further insight; namely, that in order to realize these gains in profitability, it is necessary to reallocate participation in performance measures such that competitive agents are privileged as compared to altruistic agents. In this context, stochastic interdependencies are of importance since they yield overlapping functions of the share parameters, causing additional adaptations in the optimal design of the wage compensation system. Minimize

Economic theory typically assumes that people are only interested in their own material wealth. Experimentalists have recently discovered that this assumption is not true under all circumstances. Especially in regular face to face interactions, not only the personal well-being but also the well-being of other people is important for individual d...

Economic theory typically assumes that people are only interested in their own material wealth. Experimentalists have recently discovered that this assumption is not true under all circumstances. Especially in regular face to face interactions, not only the personal well-being but also the well-being of other people is important for individual decisions. These findings are particularly important for the design of incentive systems to control the behaviour of managers of decentralized organizational units since managers and entities repeatedly interact in order to achieve the superordinate enterprise goals. In this context social preferences such as jealousy, spitefulness and reciprocity can influence managerial behaviour on the vertical as well as the horizontal organizational layer. The appropriate design of incentive compatible wage compensation systems has to take into account that people are behaviourally different and consequently respond differently to incentives. The main goal of the paper is to analyze how the principal should react to the different behavioural traits of his agents in order to guarantee the achievement of the superordinate enterprise goals. Of particular interest is the impact of jealousy and spitefulness between horizontally aligned agents on the weighting and combination of performance measures. The cases stochastical independence/dependence as well as technological independence/dependence are differentiated throughout the analysis. Minimize

This paper addresses the question, what metrics should be used for performance evaluation and in particular how they should be weighted and combined in the presence of technological interdependencies when the agents exhibit variedly strong developed rivalry. We find that the principal reacts to his agents' competitive preferences through a reall...

This paper addresses the question, what metrics should be used for performance evaluation and in particular how they should be weighted and combined in the presence of technological interdependencies when the agents exhibit variedly strong developed rivalry. We find that the principal reacts to his agents' competitive preferences through a reallocation of incentive intensity. As a consequence, depending on the underlying sort of technological interdependency, various differences in the balancing of performance measures compared to the case of purely egoistical behavior arise and changes in the agents' basic types of compensation can occur. We further show that the principal does not want both of his agents to behave equally competitively. Instead, he can only profit when the agents are asymmetrical. Then the principal wants the more productive agent to exhibit rivalry while the other ideally should behave completely egoistically. Minimize

Economic theory typically assumes that people are only interested in their own material wealth. Experimentalists have recently discovered that this assumption is not true under all circumstances. Especially in regular face to face interactions, not only the personal well-being but also the well-being of other people is important for individual d...

Economic theory typically assumes that people are only interested in their own material wealth. Experimentalists have recently discovered that this assumption is not true under all circumstances. Especially in regular face to face interactions, not only the personal well-being but also the well-being of other people is important for individual decisions. These findings are particularly important for the design of incentive systems to control the behaviour of managers of decentralized organizational units since managers and entities repeatedly interact in order to achieve the superordinate enterprise goals. In this context social preferences such as jealousy, spitefulness and reciprocity can influence managerial behaviour on the vertical as well as the horizontal organizational layer. The appropriate design of incentive compatible wage compensation systems has to take into account that people are behaviourally different and consequently respond differently to incentives. The main goal of the paper is to analyze how the principal should react to the different behavioural traits of his agents in order to guarantee the achievement of the superordinate enterprise goals. Of particular interest is the impact of jealousy and spitefulness between horizontally aligned agents on the weighting and combination of performance measures. The cases stochastical independence/dependence as well as technological independence/dependence are differentiated throughout the analysis. Minimize

This paper addresses the question, what metrics should be used for performance evaluation and in particular how they should be weighted and combined in the presence of technological interdependencies when the agents exhibit variedly strong developed rivalry. We find that the principal reacts to his agents' competitive preferences through a reall...

This paper addresses the question, what metrics should be used for performance evaluation and in particular how they should be weighted and combined in the presence of technological interdependencies when the agents exhibit variedly strong developed rivalry. We find that the principal reacts to his agents' competitive preferences through a reallocation of incentive intensity. As a consequence, depending on the underlying sort of technological interdependency, various differences in the balancing of performance measures compared to the case of purely egoistical behavior arise and changes in the agents' basic types of compensation can occur. We further show that the principal does not want both of his agents to behave equally competitively. Instead, he can only profit when the agents are asymmetrical. Then the principal wants the more productive agent to exhibit rivalry while the other ideally should behave completely egoistically. Minimize

This paper addresses the question, what metrics should be used for performance evaluation and in particular how they should be weighted and combined in the presence of technological interdependencies when the agents exhibit variedly strong developed rivalry. We find that the principal reacts to his agents' competitive preferences through a reall...

This paper addresses the question, what metrics should be used for performance evaluation and in particular how they should be weighted and combined in the presence of technological interdependencies when the agents exhibit variedly strong developed rivalry. We find that the principal reacts to his agents' competitive preferences through a reallocation of incentive intensity. As a consequence, depending on the underlying sort of technological interdependency, various differences in the balancing of performance measures compared to the case of purely egoistical behavior arise and changes in the agents' basic types of compensation can occur. We further show that the principal does not want both of his agents to behave equally competitively. Instead, he can only profit when the agents are asymmetrical. Then the principal wants the more productive agent to exhibit rivalry while the other ideally should behave completely egoistically. ; Social Preferences; Rivalry; Technological Interdependencies; Performance Measurement; Team Composition Minimize

Economic theory typically assumes that people are only interested in their own material wealth. Experimentalists have recently discovered that this assumption is not true under all circumstances. Especially in regular face to face interactions, not only the personal well-being but also the well-being of other people is important for individual d...

Economic theory typically assumes that people are only interested in their own material wealth. Experimentalists have recently discovered that this assumption is not true under all circumstances. Especially in regular face to face interactions, not only the personal well-being but also the well-being of other people is important for individual decisions. These findings are particularly important for the design of incentive systems to control the behaviour of managers of decentralized organizational units since managers and entities repeatedly interact in order to achieve the superordinate enterprise goals. In this context social preferences such as jealousy, spitefulness and reciprocity can influence managerial behaviour on the vertical as well as the horizontal organizational layer. The appropriate design of incentive compatible wage compensation systems has to take into account that people are behaviourally different and consequently respond differently to incentives. The main goal of the paper is to analyze how the principal should react to the different behavioural traits of his agents in order to guarantee the achievement of the superordinate enterprise goals. Of particular interest is the impact of jealousy and spitefulness between horizontally aligned agents on the weighting and combination of performance measures. The cases stochastical independence/dependence as well as technological independence/dependence are differentiated throughout the analysis. ; social preferences; jealousy; spitefulness; performance measurement; multi-agent; technological dependencies; stochastical dependencies Minimize

This paper addresses the question, what metrics should be used for performance evaluation and in particular how they should be weighted and combined in the presence of technological interdependencies when the agents exhibit variedly strong developed rivalry. We find that the principal reacts to his agents' competitive preferences through a reall...

This paper addresses the question, what metrics should be used for performance evaluation and in particular how they should be weighted and combined in the presence of technological interdependencies when the agents exhibit variedly strong developed rivalry. We find that the principal reacts to his agents' competitive preferences through a reallocation of incentive intensity. As a consequence, depending on the underlying sort of technological interdependency, various differences in the balancing of performance measures compared to the case of purely egoistical behavior arise and changes in the agents' basic types of compensation can occur. We further show that the principal does not want both of his agents to behave equally competitively. Instead, he can only profit when the agents are asymmetrical. Then the principal wants the more productive agent to exhibit rivalry while the other ideally should behave completely egoistically. ; Social Preferences; Rivalry; Technological Interdependencies; Performance Measurement; Team Composition Minimize

This paper analyzes the impact of heterogeneous (social) preferences on the weighting and combination of performance measures as well as on a firm’s profitability. We consider rivalry, egoism and altruism as extreme forms within the continuum of possible preferences and show that the principal can typically exploit both the altruistic and rivali...

This paper analyzes the impact of heterogeneous (social) preferences on the weighting and combination of performance measures as well as on a firm’s profitability. We consider rivalry, egoism and altruism as extreme forms within the continuum of possible preferences and show that the principal can typically exploit both the altruistic and rivalistic behavior of his agents. Firm profits reach their maximum value if the agents are differentiated as much as possible in their individual characteristics. We provide further insight; namely, that in order to realize these gains in profitability, it is necessary to reallocate participation in performance measures such that competitive agents are privileged as compared to altruistic agents. In this context, stochastic interdependencies are of importance since they yield overlapping functions of the share parameters, causing additional adaptations in the optimal design of the wage compensation system. Minimize